Substituting Corporate Saving for Personal Saving: An Explanation for Falling Personal Saving Rates

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Purpose – The purpose of this paper is to test the hypothesis that savers may be substituting equity capital gains from stockholdings for traditional measures of personal saving. The analysis also aims to investigate dividend yield (DY) as a signal to investors about corporate saving rates (CSRs).

Design/methodology/approach – Regression analysis is used to examine the relationship between personal saving and corporate saving. The personal saving rate (PSR) is the dependent variable while three measures of corporate saving (S&P500 corporate saving rate (SPSR), S&P500 DY and national income and product accounts (NIPA) CSR) alternatively serve as the independent variable.

Findings – The results confirm that personal saving is negatively related to corporate saving for large-cap publicly traded firms. The study also finds a significant positive relationship between DY and PSR, offering support that DY provides an observable signal about corporate saving.

Research limitations/implications – The relationship between personal and CSRs is found to be robust through time. However, the downward spiral the US economy is experiencing today will provide unique and interesting data for examining the relationship in future studies.

Originality/value – This analysis differs from previous approaches by utilizing retained earnings, rather than stock market capital gains, to measure corporate saving, and provides new evidence that individuals substitute corporate saving for personal saving. The alarm expressed by the media and government over falling PSRs may not be warranted. Individuals appear to adjust personal rates to reflect the changes in corporate saving and reach the total saving rate that is optimal.